M&A appetite returns to BCM companies as deal intentions reach their highest levels in three years.

Banking and capital markets (BCM) companies are moving full steam ahead on dealmaking in 2018, according to our latest Capital Confidence Barometer report.

BCM companies proceed with M&A with an eye toward entering new markets

With increased levels of deal activity in the first half of 2018, 67% of BCM executives see the M&A market improving; 53% say they intend to actively pursue deals in the months ahead. Dealmaking is the fastest route to new markets, so there’s little surprise that 27% of BCM respondents cite market entry as the foremost M&A driver. Regionally, we also expect consolidation deals to dominate, although global megadeals remain unlikely in the short term. Instead, we expect continued high levels of payments M&A activity and FinTech to remain a hot segment, as financial institutions look for opportunities to collaborate, invest in or acquire new capabilities and improve their digital offerings.

M&A outlook

53%

of BCM respondents expect to actively pursue acquisitions in the next year — the highest in three years.

Regulation and political uncertainty pose potential threat to dealmaking

Despite confidence in increased deal activity, as 56% of BCM executives say they expect to close more deals in the coming year than they did in the previous year, 85% are willing to walk away if the deal isn’t right. This is particularly true if regulatory or government intervention or increased competition threaten to derail a potential deal. In fact, more than half (52%) of BCM executives indicate that regulation and political uncertainty pose the biggest potential risk to dealmaking in the next 12 months.

Post-deal integration becomes a more prominent pre-deal consideration

With M&A gaining momentum in BCM, 41% of companies indicate that they are starting integration planning earlier to capture synergies and maximize deal value. Past experience appears to be shifting future behaviors, as 44% of BCM companies admit to achieving lower synergies when compared with the synergies identified at the time of the deal.

BCM companies accelerate portfolio reviews to improve agility

Under pressure from investors to maintain margins, BCM companies are stepping up their portfolio reviews. Almost three-quarters (73%) say they review their portfolios at least every six months. Disruptive forces and geopolitical uncertainty are two reasons. The ability to pivot and adjust to respond to changes that impact access to customers is another. In doing so, 70% of BCM companies have identified underperforming or disruption-prone assets ripe for divestment.

Every transaction has tax implications, whether it’s an acquisition, disposal, refinancing, restructuring or initial public offering. Our extensive cross-border experience, strong international network and broad commercial focus can help you identify the critical strategic tax considerations and explain them in the context of your transaction and future plans for the business.

Summary

More than half of BCM executives expect to pursue dealmaking as a way to enter markets, consolidate regionally and improve digital offerings. Despite eagerness to pursue deals, executives are cautious of regulatory issues or political uncertainty. For the deals that are done, they intend to plan earlier for integration to achieve higher synergies. Executives are also conducting more frequent portfolio reviews to better adjust to disruption and market changes. Download the full report (pdf).

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